Weekly Blog by Philip King, CEO of the ICM - 'Painting a grim picture of Payday lenders'

I've been inundated with government papers over the past few weeks such as the Insolvency Practitioners Fees Review, the Review of Pre-Pack Administrations, the Simpler Reporting proposals for Micro Businesses, the Money Advice Service proposals to improve the quality of Debt Advice, HMRC and DWP debt management strategies, the Treasury and FSA consultations on the transfer of consumer credit regulation from the OFT to the FCA, the proposed EU Data Protection changes, and a host more.  As a result, I've been a bit tardy in getting to read in detail the OFT's Payday Lending Compliance Review.  Its contents are shocking.

 

Let me make it clear from the outset that I am not in the 'outlaw all payday lenders' camp; I believe that such products have their place and when offered, and used, sensibly can be useful to a good many people.  But that doesn't excuse the findings in this review.  Among the highlights, or perhaps I should call them lowlights, the review reports that 28% of loans issued in 2011/12 were rolled over at least once, with at least a third of lenders actively promoting rollover at the point of sale and a number agreeing to rollover loans even after a borrower has missed a repayment.  By way of example, staff in two large high-street firms were told that rollovers were regarded as 'key profit drivers' and that staff were encouraged to promote them. In one case, this was even written into the training manual!

 

Equally worrying to me though is the absence of affordability checks.  Most lenders asserted that they undertook affordability assessments at the initial loan stage yet the vast majority were unable to provide satisfactory proof that they had applied such assessments in practice.  Only six of the 50 lenders visited were able to provide documentary evidence that they assessed consumers' likely disposable income as part of their affordability assessments.

 

The basic premise of credit management, whether the customer is a multi-national business, a small trader, or an individual, is to determine whether the customer is 'good' for the amount of credit being extended and whether it can afford to repay in accordance with the agreed terms. Furthermore, in the case of consumers, assessing creditworthiness is a requirement of the Consumer Credit Act and OFT guidelines.

I know the majority of the inspections were carried out before revised industry codes of practice and the sector-wide Good Practice Customer Charter came into force but the revelations of the report paint a wholly unacceptable picture.  The enforcement action already started and the 12 week deadline to address all areas of non-compliance is welcome, the proposed investigation by the Competition Commission makes sense, and the expectation that the FCA will take a more rigorous approach when it takes over consumer credit regulation next April is encouraging.

 

In the meantime I hope the OFT will live up to its promise that it will not gradually fade away but will continue to act vigorously in the period until it is replaced by the FCA.  A year is a long time in the consumer credit market.

 

I'll be welcoming a couple of guest blog writers over the next two weeks. Charles Wilson, Managing Director of Lovetts Solicitors, an ICM Fellow, and a member of our Technical Committee will be writing next week, and our own Debbie Tuckwood, ICM Director of Learning & Development, the week after.  I'll be decorating over Easter so will be looking forward to returning to normality thereafter!

 

 

Weekly Blog by Philip King, CEO of the ICM - 'New Directive leaves authorities doing the maths'

So, the deadline for transposition of the EU Late Payment Directive 2011/07/EU finally arrives this Saturday and the UK government has met the deadline and even issued a Users’ Guide that can be found here.

 

I don't want to go into great detail about the Guide, Directive or Statutory Instrument here, but one paragraph in the Guide has really caught my attention. The paragraph in question within the 'Payment between public authorities and business' section says: ‘If you are a Public Authority..........If you do not pay within the deadline, you are obliged to automatically pay the outstanding amount that includes daily interest for every day payment is late based on 8 percentage points above the Bank of England’s reference rate plus the fixed amount, depending on the size of the unpaid debt. The onus is on you to pay your supplier on time and the supplier is not obliged to remind you that payment is outstanding."

 

The public authority customer is therefore expected to proactively recognise that it is paying late, calculate the late payment charges/interest and add the amount to the remittance regardless of whether the creditor asks for the amount or not! Now, I don't want to be a cynic but what are the chances of this actually working in practice? I can see all sorts of issues and difficulties: how, for example, are authorities going to know they are expected to do this? Who is going to make the calculation and approve the additional payment? How is the increased value going to be matched to the original purchase order? I'd be interested to hear views from readers with their opinion of how they see this working. Please email me at ceo@icm.org.uk or go to the ICM Credit Community LinkedIn group, or the Discussion Forum on the ICM website members area’ and let me know.

  

Finally, I have to mention Start-Up Loans. I'm privileged to have been involved on the Board of the company since its launch and I'm incredibly proud of its success as demonstrated by the announcement this week that the scheme has exceeded expectations as 2,000 aspirational young entrepreneurs have now received support (a loan supported by mentoring) to help get their business venture off the ground. The scheme has already reached its £10 million pilot spend, and a further £5.5 million injection of funding was approved this week in Parliament to fulfill its pipeline until the end of the month. The Government has made £117.5 million available to fund the Start-Up Loans scheme up to 2015. Amidst all of the sometimes dubious schemes our government has come up with in recent times, this is one where it appears to have got it right.

Weekly Blog by Philip King, CEO of the ICM - 'Understanding the value of software'

I had an interesting meeting with our friends at Intuit last week, a company probably best known for its Quickbooks range of accounting software. But as well as producing financial software for small businesses, it also provides free small business training through its Financial Fitness workshops programme. It was this latter activity and its support for Start-Up Loans that led to our meeting.

 

I was pretty impressed by the products I saw and by the ways in which different financial activities can be integrated and monitored over a range of mobile devices as well as traditional Pcs, but I was staggered by a statistic they shared with me. I'm well aware of the 'lies, damned lies, and statistics' notion but – even if the detail is over-stated  - it's still incredible. I was told that 66% of businesses with up to 15 employees use no software at all to manage their accounts, either relying on an accountant to periodically pull together numbers from a pile of abstract pieces of paper and records, or simply muddling through with a combination of paper and/or spreadsheets.

 

I've been preparing for a presentation at the Milton Keynes Business Expo 3.0 Exhibition on 8 March where I'm addressing the topic 'Cashflow is King – Ten Top Tips', and this has made me think. Managing a business means knowing its position at any particular point in time. With a diverse range of simple and inexpensive tools available from a host of different suppliers that allow for the production of invoices, recording of expenditure, taking of payments, summarising outstanding debts, and a great deal more besides, you have to ask why any business, however small, would not use something so obvious and instantly available to make its life easier. I clearly knew there'd be a proportion of businesses that manage without any software or specific credit management tools but 66% is a real concern. I think I have just found an eleventh tip…!

Weekly Blog by Philip King, CEO of the ICM - 'Tangible examples of best practice'

One of my most enjoyable tasks is presenting the ICM's Quality in Credit Management Award to companies that have achieved the challenging accreditation. And it is happening with increasing regularity: we now have 29 accredited organisations and many more underway. This week I was privileged to present the award to the team at Venn Group in London.

Every organisation I visit is a demonstration of best practice but one thing in particular stood out for me at Venn Group: the way in which credit management practice and principles are integrated into the entire business. At the presentation of the award, the owners of the business and directors from every function were present and it was apparent that credit management isn't just a function within the business. Rather, cashflow is recognised as vital and every activity across the organisation from those who acquire business onwards recognises the importance of contributing to its management and control. I often talk about the importance of credit management sitting at the heart of the business and it's great to see a tangible example of it in practice.

 

On Monday, I presented at the launch of the ICM's partnership with Bank of America. The partnership is ground-breaking in the way it has been created. It will deliver an opportunity for all members of the Credit Risk Management team to develop skills, gain qualifications, and contribute to the validation of the quality of its operation. The excitement, passion and commitment of the team in Chester was fantastic to see and truly inspirational.

 

It's been another great week and I'm trying hard to forget the fact that I had to decline an invitation to Buckingham Palace on Monday for an event hosted by the Duke of York to launch the Start-Up Loans Company Ambassadors Scheme!

Weekly Blog by Philip King, CEO of the ICM -'Directors must take responsibility for their actions'

I received the report from the House of Commons Business, Innovation and Skills Committee on The Insolvency Service (Sixth Report of Session 2012/2013) recently. In more everyday parlance, this was the report from the Select Committee that met last October and heard evidence from the Insolvency Service, R3, the Insolvency Regulatory Bodies and others. One of the comments in our submission has been somewhat over-stated,  and our words used out of context, but I am particularly pleased at the inclusion of another reference which says: 'The Institute of Credit Management summarised the concerns of many of those who submitted evidence to us when they commented: "We would be greatly concerned if the reductions in budget [of the Insolvency Service] resulted in a degradation or reduction of Disqualification Unit activity. We believe any such dilution of activity would send entirely the wrong message to delinquent directors at a time when corporate insolvencies are likely to increase".'

 

In connection with the disqualification of directors, the report points out that 'disqualifications have halved over the last couple of years………whilst the number of directors disqualified each year has remained relatively stable over the past decade (approximately 1,200 a year), the number of cases of misconduct identified by Insolvency Practitioners in the same period has risen from 3,539 to 5,401…..the disqualification rate has fallen from 45% in 2002-03 to just 21% in 2011-12.'

 

It is widely accepted that the UK is one of the easiest countries in which to start a business, and that's good, but business owners need to show some responsibility in return for the 'veil of incorporation' which limited company status affords them. If a company can be formed with £1 issued capital and the directors have no personal liability, there have to be consequences if they are found to be guilty of misconduct that leaves their creditors out of pocket. Insolvency Practitioners are required to submit a return identifying where they believe misconduct to have occurred and they have the right to expect their report to be acted upon. Currently only 20% of reports are taken forward to disqualification and that's not good enough so I'm delighted that the Report recommends 'that the Department provides the Insolvency Service with sufficient, and if necessary, additional funding to disqualify or sanction all directors who have been found guilty of misconduct.'

 

Let's encourage entrepreneurship and initiative but let's not turn a blind eye on sharp practice that leaves suppliers with bad debts and impacts negatively on their business and the wider economy. I happen to believe there should be a minimum amount of issued capital required to form a limited company so that directors and business owners take their responsibility more seriously but I'll save that argument for another day. In the meantime, let's hope the Select Committee's recommendation is fulfilled. It definitely needs to be.

Weekly Blog by Philip King, CEO of the ICM - 'That was the week that was!'

Firstly, we had the ICM British Credit Awards at the Park Lane, London Hilton on Wednesday last and, from all the feedback I've received so far, it was our best awards event yet, and one of the best the industry has ever seen. Over and above the joy of celebrating with all those who were short-listed for awards, and particularly with the winners, the evening was a triumph with exceptional entertainment from The Three Waiters, and superb hosting by Martin Bayfield. It was great to spend a night in the company of colleagues from across the industry and a reminder of what organisations like the ICM do so well.

 

Secondly, on Thursday, Michael Gove - the Education Minister - announced that the new draft National Curriculum for England will see financial education embedded in both mathematics and in citizenship education, making financial capability a statutory part of the curriculum for the first time ever.

 

Specifically, the new programme of study for Citizenship includes the functions and uses of money, the importance of personal budgeting, money management and a range of financial products and services in Key Stage 3, and wages, taxes, credit, debt, financial risk and a range of more sophisticated financial products and services in Key Stage 4.

 

This announcement follows a prolonged pfeg (Personal Finance Education Group) campaign supported by the All Parliamentary Group on Financial Education (chaired by my local MP, Justin Tomlinson) and by hundreds of MPs, teachers, parents, and professional bodies including the ICM. It is a triumph for pfeg which coincidentally was the chosen charity for our Awards Dinner and will benefit from the many financial pledges made on the night in its mission to support education providers in giving children and young people the skills, knowledge and confidence to manage money.

 

As I write these words, more pledge cards are still being received so we do not have a final figure of commitments made but, from our work with pfeg in recent years, I am confident that it will all be put to good use and will help to ensure that the next generation is better equipped to deal with personal finance and debt than the current generation.

 

On that subject, the ICM Think Tank this week focused on the role of the advice sector, and particularly the work of StepChange Debt Charity that has been helping people break free from problem debt for 20 years. It was useful for the group of senior executives from across the credit industry to learn more about the charity's mission and work, and to discuss the role of the advice sector and its relationships with the creditor community.

 

Finally, it was good to see the publication by the Insolvency Service of its Debt Management Plan Protocol which aims to protect and promote the needs and best interests of consumers who take out DMPs. In particular, it should help to ensure there is a greater level of consistency and transparency and weed out some of the unscrupulous operators who are conspiring to give the sector a bad name.

 

All in all a good week then!

 

Weekly Blog by Philip King, CEO of the ICM - 'Celebrating success'

I'm writing these words ahead of the ICM British Credit awards which are taking place at the Hilton, Park Lane. A night of celebration, networking and fun with about 400 people, many of whom will be hoping that their entry to the Awards has done enough to earn them success. They should all however recognise the achievement of being short-listed - there may only be one trophy but they're all winners!

The success of the Awards has made me reflect on the power of social media. When we held our last Awards Dinner in February 2011, I think I'd just started Tweeting and I was certainly a novice. Since that time, Twitter has emerged as a powerful source and - in many respects - an effective tool. I'm an avid personal user (@philipkingicm) of Twitter but the ICM's corporate social media activity (@icmorg) is driven by my long-suffering Executive Assistant, Tracy Carter (@tracycarter) and she ensures that our activity is as effective as possible, constantly watching for new developments such as pinterest which we'll be using to post pictures from the Awards Dinner at the event and afterwards (http://pinterest.com/icmorg/icm-credit-awards-2013/).

Whether you're a user of social media or not, and whether you believe it has a place or not, there can be no doubt that it is having a major impact. I've just finished listening to Nick Robinson's book 'Live from Downing Street' and he makes the point that phenomena like Twitter mean that politicians and broadcasters are no longer able to control the timing of news being released in the way they were able to just a few years ago. 

The last few days has seen frenetic activity on Twitter and LinkedIn as we count down to our Awards evening, and hundreds of conversations and exchanges have taken place that would never have happened without Twitter. Real conversations are still the best form of communication but let's not knock anything that complements them and allows for networking and communication that otherwise wouldn't exist at all.